Recent college graduates are dealing with more than just trying to land their first jobs according to recent economic findings. And as a parent who just saw my daughter graduate college and move out of the state to Nashville, it’s worrisome. As it is for many of you too, I’m sure.
At that age of life, there’s the cost of rent. And, eating out with friends, of course for their all important social lives. And gasoline. And car insurance. And on and on.
Gen Z members, those born between 1997 and 2012, have been hit harder by inflation than all other age groups and the effects could have a detrimental effect on their financial health for years to come, according to studies by Moody’s Analytics and TransUnion, the credit reporting agency.
Young adults, up to age 27 are bearing the brunt of a historic spike in prices over the past few years that has financially strained most Americans of all ages. That’s because Gen Z’s incomes are lower since they’re just entering the workforce of course. This demographic is also big consumers of some of the chief inflation drivers, like housing and meals out.
Overall inflation has eased substantially from a 40-year high of 9.1 percent in mid-2022 according to the Labor Department’s consumer price index (CPI). However, after dropping last year it picked up in early 2024 and has been stuck at about 3.4 percent since last fall. And sometimes those government numbers just can’t be trusted.
Because remember, anyone who pays for gas and groceries knows that inflation is much more than the “5 percent” number constantly floated by the government. There is also such a thing as “hidden costs.” Companies don’t want to increase the price of their products, but their costs keep rising. As a result and to compensate, they often reduce the quality or qauntity of their products. Have you noticed how much smaller many food items are these days, or how smaller the quantity even though the prices are the same? That’s inflation, too.
Based on that generation-specific measure I mentioned above, yearly inflation in March of this year was running about 1/2 a percentage point higher for Gen Z than for every other “group” like millennials, Gen X, baby boomers and the “silent” and “greatest” generation—a significant difference.
Besides earning lower incomes than other age groups, young Americans buy a disproportionate share of products and services that have soared in price. For instance, they devote nearly 20 percent of their income to rent, averaged across the entire age group, compared to 7 percent for the average American, the Moody’s data shows.
Few of these Gen Z members own their homes, which means those who aren’t still living with their parents or other relatives are probably renting. Additionally, rent has jumped 5.4 percent in the past year and 21 percent since early 2021, the CPI shows. Housing itself has accounted for 36 percent of the rise in consumer prices in recent months.
Young people also spend 5.5 percent of their income on dining out, compared with 4.5 percent for the average person; 5.3 percent on gasoline versus an average of 3.2 percent and 2.6 percent on auto insurance versus an average of 2.3 percent, the Moody’s analysis shows. The first two examples can be controlled with a little—or a lot—of discipline. Insurance is another story.
Auto insurance has leaped almost 23 percent in the past year, and young Americans typically pay higher premiums because insurance companies believe they’re more likely to get into accidents and make poor decisions.
The additional costs that Gen Zers face have led them to amass more credit card debt than millennials at the same age, according to a TransUnion study last month. And, of course, they are targeted for such credit while in college. Gen Zers ages 22 to 24 had an average credit card balance of $2,834 late last year, compared with an inflation-adjusted $2,248 for millennials at the same age in late 2013.
And 1.6 percent of Gen Z card holders were sixty or more days delinquent on their payments in late 2023, vs. 1 percent of Millennials a decade ago.
Although Gen Zers and millennials each dealt with major, historic crises—the Great Recession and pandemic downturn—inflation has left Gen Zers more debt-burdened and strapped for cash. In 2021 and 2022, they benefited from COVID-19-related stimulus checks and other federal aid. But that money largely has run dry now, forcing many in that age group to turn to credit cards or other types of loans, including money from parents which might never be paid back.
Such debt can weigh on young adults and affect their credit scores for years because they haven’t yet built credit histories, says Charlie Wise, TransUnion’s senior vice president and global research head.
As parents, we all try hard to teach financial lessons to our children. Many of their money mistakes they’re now facing are of their own making. But many are not and are affecting all of us.
It’s sad that our young people are facing such challenges so early in their lives as they start their careers and families.
Let’s hope that some miraculous happens and things in improve.
In closing, you’ll notice an annoucement on page 8 that our company has just acquired the Mississippi Business Journal. We are excited to add this publication to our other publishing ventures.